SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File No. 0-24188
JOTAN, INC.
(Exact name of small business issuer as specified in its charter)
Florida 59-3181162
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Issuer's telephone number, including area code (904) 355-2592
-------------------------------------------------------------------
Former name, former address and former fiscal year, if changed
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the issuer was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS - State the number of shares outstanding of
each of the issuer's classes of common equity, as of the latest practicable
date: 21,414,013 shares of common stock, $.01 par value, as of April 15, 1998.
<PAGE>
INDEX
Jotan, Inc.
Part I - Financial Information Page
Item I -- Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations
For the Three Months ended March 31, 1998 and 1997 2
Condensed Consolidated Balance Sheet at
March 31, 1998 and 1997 3 and 4
Condensed Consolidated Statements of Cash Flows
for the Three Months ended March 31, 1998
and 1997 5 and 6
Notes to Condensed Consolidated Financial Statements 7
Item II -- Management's Discussion and Analysis of
Financial Condition and Result of Operations 8
Item III -- Liquidity and Capital Resources 9
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
<TABLE>
Jotan, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three months ended March 31
1998 1997
<S> <C> <C>
Sales $ 15,861,484 $ 6,789,207
Cost of sales 11,129,653 4,748,143
------------ ------------
Gross profit 4,731,831 2,041,064
Operating expenses 4,870,977 1,941,325
Amortization of goodwill and non-compete 192,321 272,508
------------ ------------
Operating income (loss) ( 331,467) ( 172,769)
Other income 4,333 9,910
Interest expense ( 1,054,725) ( 320,598)
Income (loss) before taxes ( 1,381,859) ( 483,457)
Income tax expense - -
------------ ------------
Net income (loss) ( 1,381,859) ( 483,457)
Amounts attributable to preferred stock 371,977 100,209
------------ ------------
Net income (loss) attributable
to common shareholders $ ( 1,753,836) $ ( 583,666)
============== ==============
Net income (loss) per share
Basic $ (.31) $ (.10)
============= ============
Diluted $ (.31) $ (.10)
Weighted average number of shares outstanding:
Basic 5,696,611 5,679,411
========= =========
Diluted 5,696,611 5,679,411
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
<TABLE>
Jotan, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
<CAPTION>
March 31
1998 1997
---- ----
<S> <C> <C>
Assets
Current assets:
Cash $ 1,180,178 $ 3,018,575
Accounts receivable, net 9,159,429 7,342,019
Inventory 7,052,975 7,198,999
Other current assets 1,757,815 788,247
---------- ----------
Total current assets 19,150,397 18,347,840
---------- ----------
Property and equipment, net 4,687,138 4,882,390
Goodwill, net 1,948,030 25,185,671
Non-compete agreements, net 1,760,949 6,490,500
Other assets 275,869 932,328
----------- -----------
Total assets $27,822,383 $55,838,729
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
Jotan, Inc.
Condensed Consolidated Balance Sheet
(Unaudited)
<CAPTION>
March 31
1998 1997
---------- ----------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Trade payables $ 7,490,563 $ 7,697,317
Accrued expenses 3,543,235 3,766,276
Current portion of long-term debt,
and capital leases 9,903,432 1,306,802
Other 1,431,633 898,454
--------- -------
Total current liabilities 22,368,863 13,668,849
---------- ----------
Capitalized lease obligations 3,828,652 4,029,643
Other liabilities 2,125,105 122,486
Long-term debt, less current maturities
Related parties 9,189,596 8,710,000
Other 14,313,768 17,773,077
---------- ----------
29,457,121 30,635,206
---------- ----------
Redeemable preferred stock with related parties 12,932,747 9,340,000
Stockholders' equity (deficit)
Preferred stock:
Authorized shares - 10,000,000
Issued and outstanding shares to
related party - 1,435,705 in 1998 and
1,265,823 in 1997 14,357 12,658
Voting common stock, $.01 par value:
Authorized shares - 40,000,000
Issued and outstanding shares - 5,696,611
in 1998 and 5,679,411 in 1997 56,966 56,794
Additional paid-in capital 3,849,385 4,613,983
Retained earnings (deficit) (40,857,056) (2,488,761)
------------ -----------
Total stockholders' equity (deficit) (36,936,348) 2,194,674
------------ -----------
Total liabilities and stockholders' equity $27,822,383 $55,838,729
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
Jotan. Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
March 31
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $( 1,381,859) ( 483,457)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization expense 355,441 329,213
Stock compensation expense - 25,800
Changes in operating assets and liabilities:
Accounts receivable 397,530 178,786
Inventory 231,334 ( 227,476)
Other current assets ( 91,315) 47,583
Other assets - 495,192
Trade payables 62,378 2,892,684
Accrued expenses 138,283 30,422
Other current liabilities ( 115,571) ( 23,667)
Other liabilities 1,944 -
------------ ------------
Net cash (used in) provided by operating
activities ( 401,835) 3,265,080
Cash flows from investing activities
Proceeds from sale of property and equipment - 1,000,000
Purchase of property and equipment ( 2,375) ( 31,203)
Purchase of business Southland, net of cash
acquired - ( 37,482,786)
------------- -------------
Net cash used in investing activities ( 2,375) 36,513,989)
------------- -------------
Cash flows from financing activities
Proceeds from (payments) on line of credit
borrowings - ( 1,594,076)
Payments on long-term debt and capitalized leases ( 54,743) ( 1,195,038)
Proceeds from senior revolver - 2,830,884
Proceeds from senior term debt - 16,122,500
Proceeds from senior subordinated debt - 8,710,000
Proceeds from issuance of redeemable preferred
stock, net of issuance costs 250,000 9,340,000
Proceeds from issuance of warrants - 650,000
Net cash provided by financing activities 195,257 34,864,270
Net increase (decrease) in cash and cash equivalents ( 208,953) 1,615,361
Cash and cash equivalents at beginning of period 1,389,131 1,403,214
Cash and cash equivalents at end of period $ 1,180,178 $ 3,018,575
</TABLE>
5
<PAGE>
<TABLE>
Jotan. Inc.
Condensed Consolidated Statements of Cash Flows (Continued.)
(Unaudited)
<CAPTION>
March 31
1998 1997
------------- ------------
<S> <C> <C>
Purchase of business,
Southland net of cash acquired
Accounts receivable $ - $( 5,967,581)
Inventory - ( 5,789,881)
Other current assets - ( 517,889)
Property and equipment - ( 4,069,138)
Other assets - ( 820,802)
Trade payables - 3,278,692
Accrued expenses - 3,488,497
Other current liabilities - 922,121
Other liabilities - 122,486
Non - Compete - ( 6,600,000)
Goodwill - (25,262,114)
Notes payable and capitalized leases - 3,732,823
------------- ------------
$ - $(37,482,786)
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
Jotan Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. The Business and Basis of Presentation
Description of Business
The Company is a distributor of packaging and shipping supplies with twenty
distribution centers and two production facilities located throughout the United
States. The Company sells to a broad customer base including industrial, moving
and storage, air freight, and perishable food market segments. Prior to March
1997, Jotan, Inc. was a southeast regional distributor of packaging materials
providing "Just On Time As Needed" delivery service for its industrial
customers.
On March 4, 1997 the Company completed the acquisition of 100% of the stock of
Southland Holding Company ("SHC"). The subsidiaries of SHC and one affiliate of
the Company merged with and into SHC in 1997 which changed its name to Southland
Container Packaging Corp. ("Southland"). Southland is a distributor of packaging
and shipping supplies with [eleven] distribution centers throughout the United
States. Southland served primarily the moving and storage industry, but also
provided packaging products to the air freight and perishable food markets. As
of June 20, 1997 the Company completed the acquisition of the assets of Cove
Container Corporation ("Cove"). Cove is a distributor of packaging and shipping
supplies with a distribution center located in Pontiac, Michigan, and a
manufacturing facility in West Branch, Michigan. Cove serves both the industrial
and the moving and storage industry segments.
Basis of Presentation
The accompanying financial statements are unaudited and, in the opinion of
management reflect all the adjustments that are necessary for a fair
presentation of the financial position and results of operations for the periods
presented. All of such adjustments are of a normal and recurring nature.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the entire year. The financial
statements at March 31, 1998 and March 31, 1997 reflect the combined accounts of
the Company and its subsidiaries. Certain information and footnote disclosure
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
7
<PAGE>
Jotan, Inc.
II. Management's Discussion and Analysis of Financial Condition and Results of
Operations
On March 4, 1997, the Company completed the acquisition of 100% of the stock of
Southland Holding Company and its subsidiaries, now known as Southland Container
Packaging Corp. ("Southland"). On June 23, 1997, the Company completed the
acquisition of the assets of Cove Container Corporation ("Cove"). As a result of
these acquisitions, the Company's financial statements for the quarter ended
March 31, 1997 and the quarter ended March 31, 1998 are not comparable in many
respects. To facilitate a meaningful comparison of the Company's operating
performance, the following discussion and analysis is presented on a traditional
basis. Included in the following discussion are comparisons of EBITDA (earnings
before interest, taxes, depreciation, and amortization and other extraordinary
and non-recurring charges). The Company believes EBITDA is helpful in
understanding cash flow generated from operations that is available for taxes,
debt service and capital expenditures. In addition, EBITDA, as redefined in the
senior loan documents to exclude certain extraordinary and non-recurring
charges, facilitates the monitoring of covenants related to certain long-term
debt. EBITDA should not be considered by investors as an alternative to net
earnings as an indicator of the Company's operating performance or to cash flows
as a measure of its overall liquidity. Jotan, Inc. and its consolidated
subsidiaries reported a net loss of $1.4 million for the quarter ended March 31,
1998 compared to a net loss of $.5 million for the same period in 1997. EBITDA
for the quarter ended March 31, 1998 was $126 thousand compared to $156 thousand
for the same period in 1997.
<TABLE>
1998 ($000's) 1997 ($000's)
<CAPTION>
<S> <C> <C>
Operating Income/(Loss) (331) (173)
Amortization 192 272
Depreciation 163 57
Other Non-Recurring 102
EBITDA 126 156
</TABLE>
Net sales for the first quarter of 1998 increased to $15.9 million from $6.8
million for the first quarter of 1997. The increase in net sales was primarily
related to post acquisition revenue generated by the Southland and Cove
operations which is only partially included in first quarter 1997 results.
Gross profit increased to $4.7 million for the first quarter of 1998 from $2.0
million the same period in 1997. Margins declined slightly from 30.1% to 29.8%.
The increase in gross profit was primarily related to post acquisition revenue
generated by the Southland and Cove operations which is only partially included
in first quarter 1997 results.
Operating expenses increased to $4.9 million for the first quarter of 1998 from
$1.9 million for the same period in 1997. The major factor contributing to these
increases was the inclusion of Southland operating expenses in the post
acquisition period.
Amortizations of goodwill and non-compete agreements were $192 thousand and $273
thousand for the first quarters of 1998 and 1997, respectively. Post acquisition
amortization expense was significantly reduced by the year-end 1997 write-off of
Southland related goodwill.
Interest expense for the first quarters of 1998 and 1997 amounted to $1.1
million and $0.3 million respectively. The major factor contributing to these
increases was the impact of increased borrowings related to the Southland
acquisition.
In April, 1998, the Company selected Raleigh C. Minor to be Chief Executive
Officer of the Company and Southland. Mr. Minor had been serving as Interim
Chief Executive Officer. Mr. Minor was also a principal of
8
<PAGE>
Jotan, Inc.
II. Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Allomet Partners Ltd., but resigned when selected to be the Chief Executive
Officer.
The Company has developed a Business Plan to improve performance, meet cash
requirements including bank and vendor debt, and establish a foundation for
future operations. Key elements of the plan include management restructuring,
facility consolidations, improved working capital management, cost containment,
and expansion within certain product lines. Significant progress has been made
toward implementing the Plan including warehouse consolidations/closures in
Syracuse, Denver, and Tacoma.
For the first quarter, the Company reported EBITDA of $126 thousand versus a
planned first quarter loss of $145 thousand. Although it is much too soon to
predict success, there are many marked changes as compared to 1997. There are
risks associated with this plan, including but not limited to, general economic
and business conditions, competitive market pricing, and failure to effectively
maintain vendor relationships.
III. Liquidity and Capital Resources
On December 31, 1997 the Company did not make the scheduled principal and
interest payments required under its credit agreement (the "Credit Agreement")
with Banque Paribas, individually and as agent for other participating banks
(the "Banks").
As of April 14, 1998, the Company and Southland entered into a Fifth Amendment
to its Credit Agreement with the Banks (the "Fifth Amendment") whereby the Banks
waived the events of default for nonpayment and agreed to defer delinquent
interest payments and other scheduled interest payments through July 31, 1998 by
execution of interest deferral notes. Scheduled principal payments also were
deferred until March 1999. The Company agreed to shorten the maturity date of
all loans so that all principal and interest under loans from the Banks will be
due on February 28, 2001. The Company agreed to give the Banks tighter controls
and liens on cash collateral, and the Banks agreed to relax certain financial
covenants, although the miscellaneous debt restriction was reduced to $100,000.
One of the new terms was that all collections on customer receivables would be
used to pay down the revolving line of credit through a lockbox arrangement. As
a result, the amount outstanding under the revolving line of credit has been
classified as a current liability resulting in a working capital deficit of
approximately $3,200,000. As a result of the Fifth Amendment, the Company's
working capital line of credit with the Banks was extended by approximately $1.5
million to help meet the Company's financing requirements.
In conjunction with the Fifth Amendment, Rice Partners II L.P.(Rice) loaned the
Company an additional $1,250,000. In exchange for this loan which was obtained
in April 1998, the Company issued to Rice its 12.5% priority senior subordinated
notes (the "Priority Notes"). Interest payments under the Priority Notes are
payable with PIK notes until the Bank's debt is repaid. The Priority Notes and
the PIK Notes are junior to the Bank's debt but senior to the subordinated notes
previously issued to Rice and Fairview in 1997. The Company agreed to issue to
Rice exercisable warrants for the purchase (at a nominal exercise price) of
42,377,173 shares of the Company's common stock. The Company also agreed to
issue to Rice similar warrants to purchase 8,475,638 shares of the Company's
common stock in connection with Rice's purchase of $250,000 of Series B
Redeemable Preferred Stock in January, 1998. The total number of shares of
common stock provided under these warrants may be reduced if a fairness opinion
from an independent financial advisor indicates that the number of shares
issuable under the warrants is not fair to the Company's shareholders. The
exercise of such warrants is subject to the filing of an amendment to the
Articles of Incorporation of the Company to increase its authorized shares of
common stock. This amendment is subject to shareholder approval and certain
disclosure requirements. The affirmative vote of Rice alone will constitute the
vote required to approve the amendment. The Company has filed a preliminary
proxy statement with the Securities and Exchange Commission that contains a
shareholder proposal to approve such amendment.
9
<PAGE>
Jotan, Inc.
III. Liquidity and Capital Resources (continued)
Negotiations were held with certain key vendors to hold in abeyance amounts due
while a repayment plan was implemented and bank negotiations were completed. A
plan has been developed and implemented, with the approval of the creditors
involved, to accomplish the repayment of past due amounts over a two year period
while providing for the uninterrupted supply of materials for the business.
Part II -- Other Information
Item 6--Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K Current Report, Item 5, Other Events, filed
January 9, 1998.
Form 8-K Current Report, Item 5, Other Events, filed
February 27, 1998
10
<PAGE>
<TABLE>
Jotan, Inc.
Exhibit 11 Statement Re: Computation of Per Share Earnings
<CAPTION>
Three months ended March 31
1998 1997
<S> <C> <C>
Basic and Diluted:
Average shares outstanding 5,696,611 5,679,411
========= =========
Net income (loss) $(1,381,859) $ (483,457)
Amount attributable to preferred stock 371,977 100,209
----------- ----------
Net income (loss) attributable to common
shareholders $(1,753,836) $ (583,666)
=========== ===========
Per share amount basic and diluted $ (.31)* $ (.10)*
=========== ==========
</TABLE>
* Effect of common stock equivalents was not considered
as the effect was anti-dilutive.
11
<PAGE>
Jotan, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Jotan, Inc.
By: /s/ Raleigh Minor
---------------------------------
Raleigh Minor, President
and Chief Executive Officer
By: /s/ Edward Lipscomb
---------------------------------
Edward Lipscomb, Vice President
and Chief Financial Officer
May 29, 1998
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000921381
<NAME> JOTAN, INC.
<MULTIPLIER> 1
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,180,178
<SECURITIES> 0
<RECEIVABLES> 9,888,049
<ALLOWANCES> 728,620
<INVENTORY> 7,052,975
<CURRENT-ASSETS> 19,150,397
<PP&E> 5,768,706
<DEPRECIATION> 1,081,568
<TOTAL-ASSETS> 27,822,383
<CURRENT-LIABILITIES> 22,368,863
<BONDS> 0
12,932,747
14,357
<COMMON> 56,966
<OTHER-SE> (37,007,671)
<TOTAL-LIABILITY-AND-EQUITY> 27,822,383
<SALES> 15,861,484
<TOTAL-REVENUES> 15,861,484
<CGS> 11,129,653
<TOTAL-COSTS> 11,129,653
<OTHER-EXPENSES> 5,058,965
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,054,725)
<INCOME-PRETAX> (1,381,859)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,381,859)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,381,859)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
